Telecommunications Consumers: A Behavioral Economic Analysis

Authors

PETER D. LUNN

Peter D. Lunn (pete.lunn@esri.ie) is a Behavioral Economist at the Economic and Social Research Institute (ESRI) in Ireland and Lecturer in the Department of Economics, Trinity College Dublin. The author is grateful to the ESRI Program of Research in Communications for funding, which in turn was funded by the Irish Department for Communications, Energy and Natural Resources and the Commission for Communications Regulation (ComReg), to Seán Lyons for helpful comments on early drafts, to seminar audiences at ComReg and the Competition Authority in Ireland, and to an anonymous reviewer for incisive comments.

Abstract

This article offers a commentary on consumer behavior in modern telecommunications markets, based on advances in behavioral economics. An original analysis of the decision-making environment faced by telecommunications consumers identifies four specific properties of the market, of which rapid technological change is just one. The core argument is that this combination of properties, which is unique to telecommunications, is likely to foment decision-making biases established by behavioral economics. This central insight is used to address two issues of concern from a pro-consumer perspective: low levels of switching between providers and failure to select optimum tariffs. Competing explanations for low switching and accumulating evidence of consumer detriment in tariff choice are outlined. The commentary concludes by considering ways that consumers might be helped to meet the challenges identified.